Go Back   English Forum Switzerland > Help & tips > Finance/banking/taxation  
Reply
 
Thread Tools Display Modes
  #1  
Old 19.06.2019, 18:28
twi twi is offline
Newbie
 
Join Date: Jun 2019
Location: Verbier
Posts: 8
Groaned at 0 Times in 0 Posts
Thanked 32 Times in 3 Posts
twi has earned some respecttwi has earned some respect
Double expected termination charge on Mortgage due to negative interest rates

Was wondering if anybody had experience of the following issue with an early mortgage termination.
I sold an apartment and so advised my bank that the fixed rate mortgage would be terminated 14 months before the end date and asked for a calculation of the termination charges.
I was surprised that the fee is twice the cost of keeping the mortgage. When I enquired they claim this is because they compare it to the interest rate obtained on a deposit with the SNB which is currently negative and as a result I must pay more.
I pointed out that the new buyer is also taking a mortgage with the same bank, he did not want to take mine over. In addition the contract states the termination fee should be the difference between the agreed mortgage rate and that available in money markets or capital markets. I sincerely doubt that the bank will place my payment in a negative yield as a positive return is still available in capital markets.
Do I have a leg to stand on or is it likely I just stump up what they are asking for?
Thanks for any advice.
Reply With Quote
  #2  
Old 19.06.2019, 19:38
Guest
 
Posts: n/a
Re: Double expected early termination charge on fixed rate Mortgage

Quote:
View Post
Was wondering if anybody had experience of the following issue with an early mortgage termination.
I sold an apartment and so advised my bank that the fixed rate mortgage would be terminated 14 months before the end date and asked for a calculation of the termination charges.
I was surprised that the fee is twice the cost of keeping the mortgage. When I enquired they claim this is because they compare it to the interest rate obtained on a deposit with the SNB which is currently negative and as a result I must pay more.
I pointed out that the new buyer is also taking a mortgage with the same bank, he did not want to take mine over. In addition the contract states the termination fee should be the difference between the agreed mortgage rate and that available in money markets or capital markets. I sincerely doubt that the bank will place my payment in a negative yield as a positive return is still available in capital markets.
Do I have a leg to stand on or is it likely I just stump up what they are asking for?
Thanks for any advice.

Tell them to piss off and you're ready to pay the mortgage off, capital X rate X time but NOTHING ELSE in one go upon presentation of their invoice
Reply With Quote
  #3  
Old 20.05.2020, 14:57
Newbie 1st class
 
Join Date: Aug 2009
Location: Basel
Posts: 13
Groaned at 0 Times in 0 Posts
Thanked 3 Times in 3 Posts
196pat has no particular reputation at present
Re: Double expected early termination charge on fixed rate Mortgage

How did you go in the end with the negative rate used to calculate the mortgage termination penalty? I am having the same issue - the bank (one of the big 2 in ch) uses the penalty formula: remaining owed interest minus current negative interest rate which mathematically adds negative rate on top of my contracted interest rate, making the penalty higher.
Anyone else had this experience? I read on Ombudsman page that there's no judicial clarity in CH around the use of negative rates to calculate mortgage termination penalties. However, looking at the mortgage contract, its intent and scope, the total profit of the contract is calculated using the fixed rate times the number of years of the contract. The total penalty shouldn't exceed total profit, right? And if the market outperforms the fixed rate, the bank wouldn't offer a client a positive gain i.e. you get zero penalty value at best. So why shouldn't the opposite work, i.e. maximum penalty= residual part of the total contracted profit.
Would anyone with a swiss legal degree (or experience/knowledge) be able to offer an opinion please? The bank is repeating that they use current interest rate to calculate the penalty without referring to the intent and the scope of the mortgage (signed in 2012, when negative interest rate didn't exist).
Reply With Quote
This user would like to thank 196pat for this useful post:
  #4  
Old 20.05.2020, 15:14
Newbie 1st class
 
Join Date: Aug 2009
Location: Basel
Posts: 13
Groaned at 0 Times in 0 Posts
Thanked 3 Times in 3 Posts
196pat has no particular reputation at present
Use of negative interest rate - mortgage termination

I am wondering if anyone recently had a similar experience and/or could share an opinion?

We have taken a mortgage with one of the big 2 banks in CH back in 2012. One tranche was for 15 years (very silly of us), 8 years on we decided to sell the house. We have asked the bank to calculate the penalties which we thought would equal a residual interest owed plus fixed fee. The bank has used the negative rate to calculate the penalty which has pushed the penalty value to a much higher level (25k more).

Anyone else had this experience? I read on Ombudsman page that there's no judicial clarity in CH around the use of negative rates to calculate mortgage termination penalties. However, looking at the mortgage contract, its intent and scope, the total profit of the contract is calculated using the fixed rate times the number of years of the contract. The total penalty shouldn't exceed total profit, right? And if the market outperforms the fixed rate, the bank wouldn't offer a client a positive gain i.e. you get zero penalty value at best. So why shouldn't the opposite work, i.e. maximum penalty= residual part of the total contracted profit.
Would anyone with a swiss legal degree (or experience/knowledge) be able to offer an opinion please in light of a general Swiss contract law? The bank is repeating that they use current interest rate to calculate the penalty without referring to the intent and the scope of the mortgage (signed in 2012, when negative interest rate didn't exist). In my view, this is a contractual breach to apply an interest rate below zero, 1) because negative rate practice didn't exist at the time, 2) it distorts the intent and purpose of the contract allowing bank to make gains over and above the contracted maximum profit, 3) there wasn't any amendment signed to allow the use of negative rates (which then should be symmetrical as a principal).
Do I stand any chance to win the argument?
Reply With Quote
This user would like to thank 196pat for this useful post:
  #5  
Old 20.05.2020, 15:57
twi twi is offline
Newbie
 
Join Date: Jun 2019
Location: Verbier
Posts: 8
Groaned at 0 Times in 0 Posts
Thanked 32 Times in 3 Posts
twi has earned some respecttwi has earned some respect
Re: Double expected early termination charge on fixed rate Mortgage

I went through the complaint process with the Ombudsman. They are very friendly and understanding of the issue. Other than the initial submission of evidence relating to the case, they do everything by post, so it all went pretty slowly. Finally they came back to me to say that despite their disagreement with CS regarding this negative interest charge they could not do more and that CS were inflexible on this issue. I thought that was the end of it but it was not. About a month after receiving the letter to say the case was now closed, the Ombudsman called me and informed me that CS had now come back to them to confirm that in this case they were incorrect and therefore would make a full refund of the negative charge. I then received anther letter asking for my bank details. I had closed my cs account already. I am now awaiting the payment. It was worth the hassle apparently.
Reply With Quote
  #6  
Old 20.05.2020, 16:14
Forum Veteran
 
Join Date: Jul 2007
Location: Vaud
Posts: 2,348
Groaned at 159 Times in 111 Posts
Thanked 4,639 Times in 1,786 Posts
Mikers has a reputation beyond reputeMikers has a reputation beyond reputeMikers has a reputation beyond reputeMikers has a reputation beyond reputeMikers has a reputation beyond reputeMikers has a reputation beyond repute
Re: Double expected early termination charge on fixed rate Mortgage

Quote:
View Post
I went through the complaint process with the Ombudsman. They are very friendly and understanding of the issue. Other than the initial submission of evidence relating to the case, they do everything by post, so it all went pretty slowly. Finally they came back to me to say that despite their disagreement with CS regarding this negative interest charge they could not do more and that CS were inflexible on this issue. I thought that was the end of it but it was not. About a month after receiving the letter to say the case was now closed, the Ombudsman called me and informed me that CS had now come back to them to confirm that in this case they were incorrect and therefore would make a full refund of the negative charge. I then received anther letter asking for my bank details. I had closed my cs account already. I am now awaiting the payment. It was worth the hassle apparently.
This is really useful, many thanks. With the world being as it is, I am sure there will be more people who have to end mortgage's early and knowing that it is simply the positive side of the mortgage rate that can be used.
Reply With Quote
  #7  
Old 25.05.2020, 13:37
Newbie 1st class
 
Join Date: Aug 2009
Location: Basel
Posts: 13
Groaned at 0 Times in 0 Posts
Thanked 3 Times in 3 Posts
196pat has no particular reputation at present
Re: Double expected early termination charge on fixed rate Mortgage

Thank you for sharing the end result. It is very encouraging. At least there are other precedents/cases which fall in the same category. I will approach the Ombudsman as soon as I hear the last word from CS, they are taking time as I have presented my case to them 3 times and told them that they are bullying me into engaging with a lawyer knowing full well the legal cost would outweigh the disputed amount.
Reply With Quote
This user would like to thank 196pat for this useful post:
  #8  
Old 25.05.2020, 15:13
Forum Veteran
 
Join Date: Jan 2016
Location: Lugano
Posts: 833
Groaned at 15 Times in 13 Posts
Thanked 924 Times in 437 Posts
LuganoPirate has a reputation beyond reputeLuganoPirate has a reputation beyond reputeLuganoPirate has a reputation beyond reputeLuganoPirate has a reputation beyond repute
Re: Double expected termination charge on Mortgage due to negative interest rates

Perhaps a bit late for the OP, but if you were looking to buy another property CS would allow you to move the mortgage to the new property.
Reply With Quote
The following 2 users would like to thank LuganoPirate for this useful post:
  #9  
Old 25.05.2020, 15:14
twi twi is offline
Newbie
 
Join Date: Jun 2019
Location: Verbier
Posts: 8
Groaned at 0 Times in 0 Posts
Thanked 32 Times in 3 Posts
twi has earned some respecttwi has earned some respect
Re: Double expected termination charge on Mortgage due to negative interest rates

That was the issue for me also and one that CS surely rely upon. They would not win in court due precedent but the costs for a mortgage <1mCHF would be prohibitive to start down that route. I sent the case to CS and spoke to them directly and fortunately had a really helpful person there present the case to his management and he was able to categorically inform me that CS would not make an exception. I think they have to stick with it otherwise they open up for having to do this for everybody and I can just assume that many Swiss people pay up without this push back. I went to the Ombudsman as soon as I had sent a letter pleading my case to CS and they had replied to say they would not adjust the settlement. Just filled out the online request on their website and then things took their own course. They asked for a couple of extra bits of information but that was it until I had the final conclusion. I might add that to date I am still awaiting the transfer of funds, although I was assured it would be done earlier this month.
Reply With Quote
  #10  
Old 25.05.2020, 18:28
Newbie 1st class
 
Join Date: Aug 2009
Location: Basel
Posts: 13
Groaned at 0 Times in 0 Posts
Thanked 3 Times in 3 Posts
196pat has no particular reputation at present
Re: Double expected termination charge on Mortgage due to negative interest rates

Quote:
View Post
Perhaps a bit late for the OP, but if you were looking to buy another property CS would allow you to move the mortgage to the new property.
Sure, CS have asked me to consider this option - transfer the mortgage to a new object. I am not excluding that we may decide to swap the house for an apartment (easier to manage if we were to leave the country). This would void all the penalties.
Reply With Quote
  #11  
Old 25.05.2020, 18:33
Newbie 1st class
 
Join Date: Aug 2009
Location: Basel
Posts: 13
Groaned at 0 Times in 0 Posts
Thanked 3 Times in 3 Posts
196pat has no particular reputation at present
Re: Double expected termination charge on Mortgage due to negative interest rates

Quote:
View Post
That was the issue for me also and one that CS surely rely upon. They would not win in court due precedent but the costs for a mortgage <1mCHF would be prohibitive to start down that route. I sent the case to CS and spoke to them directly and fortunately had a really helpful person there present the case to his management and he was able to categorically inform me that CS would not make an exception. I think they have to stick with it otherwise they open up for having to do this for everybody and I can just assume that many Swiss people pay up without this push back. I went to the Ombudsman as soon as I had sent a letter pleading my case to CS and they had replied to say they would not adjust the settlement. Just filled out the online request on their website and then things took their own course. They asked for a couple of extra bits of information but that was it until I had the final conclusion. I might add that to date I am still awaiting the transfer of funds, although I was assured it would be done earlier this month.
I guess, if I focus on the fact that CS are applying negative rate to calculate the penalty, I might win or lose the case. However, contractually speaking, the mortgage agreement is for a fixed profit (in favour of CS) and has a fixed maximum value. Increasing this value is illegal (outside of the scope of the mortgage contract) or so I believe. So my case is - I don't care what interest rate CS apply to calculate the penalty, so long as the total amount of the profit CS make doesn't exceed the fixed amount agreed in the contract. This might remove the debate about the negative rates. This is my theory anyway
Reply With Quote
  #12  
Old 25.05.2020, 18:48
fatmanfilms's Avatar
Forum Legend
 
Join Date: Apr 2010
Location: Verbier
Posts: 17,980
Groaned at 324 Times in 260 Posts
Thanked 17,327 Times in 9,462 Posts
fatmanfilms has a reputation beyond reputefatmanfilms has a reputation beyond reputefatmanfilms has a reputation beyond reputefatmanfilms has a reputation beyond reputefatmanfilms has a reputation beyond reputefatmanfilms has a reputation beyond repute
Re: Double expected termination charge on Mortgage due to negative interest rates

Quote:
View Post
That was the issue for me also and one that CS surely rely upon. They would not win in court due precedent but the costs for a mortgage <1mCHF would be prohibitive to start down that route. I sent the case to CS and spoke to them directly and fortunately had a really helpful person there present the case to his management and he was able to categorically inform me that CS would not make an exception. I think they have to stick with it otherwise they open up for having to do this for everybody and I can just assume that many Swiss people pay up without this push back. I went to the Ombudsman as soon as I had sent a letter pleading my case to CS and they had replied to say they would not adjust the settlement. Just filled out the online request on their website and then things took their own course. They asked for a couple of extra bits of information but that was it until I had the final conclusion. I might add that to date I am still awaiting the transfer of funds, although I was assured it would be done earlier this month.
The Swiss legal system does not use precedents, every case is examined on it's own merit.
Reply With Quote
  #13  
Old 26.05.2020, 08:50
Mica's Avatar
Forum Veteran
 
Join Date: Oct 2007
Location: Zurich
Posts: 818
Groaned at 1 Time in 1 Post
Thanked 1,050 Times in 463 Posts
Mica has a reputation beyond reputeMica has a reputation beyond reputeMica has a reputation beyond reputeMica has a reputation beyond reputeMica has a reputation beyond repute
Re: Double expected termination charge on Mortgage due to negative interest rates

Here is what the Bankenombudsman published on the topic:
http://www.bankingombudsman.ch/meldu...schaedigungen/

Swiss courts do indeed use precedents. This is the very reason why the Swiss Federal Supreme Court publishes its "leading cases" (Leitentscheide). https://www.bger.ch/ext/eurospider/l...ex.php?lang=de

There is simply no strict principle of "stare decisis" (i.e. that courts are strictly bound to historic decisions).
Reply With Quote
This user would like to thank Mica for this useful post:
  #14  
Old 26.05.2020, 11:15
twi twi is offline
Newbie
 
Join Date: Jun 2019
Location: Verbier
Posts: 8
Groaned at 0 Times in 0 Posts
Thanked 32 Times in 3 Posts
twi has earned some respecttwi has earned some respect
Re: Double expected termination charge on Mortgage due to negative interest rates

Quote:
View Post
The Swiss legal system does not use precedents, every case is examined on it's own merit.
oops, wrong choice of words. What I meant to say was that previous similar cases that went to court had a favourable outcome
Reply With Quote
  #15  
Old 26.05.2020, 11:28
twi twi is offline
Newbie
 
Join Date: Jun 2019
Location: Verbier
Posts: 8
Groaned at 0 Times in 0 Posts
Thanked 32 Times in 3 Posts
twi has earned some respecttwi has earned some respect
Re: Double expected termination charge on Mortgage due to negative interest rates

Quote:
View Post
Sure, CS have asked me to consider this option - transfer the mortgage to a new object. I am not excluding that we may decide to swap the house for an apartment (easier to manage if we were to leave the country). This would void all the penalties.
This is what I did when I left CH. One thing worth investigating is how much it will actually cost you to maintain any apartment you purchase while you are no longer in country (costs, taxes (this was high), service charge). I was quite surprised by the overall cost of keeping my place over 10 years, maybe it was the location in Valais but despite the fact I visited regularly, had all my gear there
and after a few years let it out on short term tenancy, once all was said and done the profit in the property after costs was forex due CHF appreciation not property CHF value appreciation.
Reply With Quote
  #16  
Old 26.05.2020, 11:54
Newbie 1st class
 
Join Date: Aug 2009
Location: Basel
Posts: 13
Groaned at 0 Times in 0 Posts
Thanked 3 Times in 3 Posts
196pat has no particular reputation at present
Re: Double expected termination charge on Mortgage due to negative interest rates

Quote:
View Post
oops, wrong choice of words. What I meant to say was that previous similar cases that went to court had a favourable outcome
Thank you for sharing this bit of info. Very useful. How unusual, but hey, there are many other unusual things when it comes to mortgages in CH.
Reply With Quote
  #17  
Old 26.05.2020, 12:01
Newbie 1st class
 
Join Date: Aug 2009
Location: Basel
Posts: 13
Groaned at 0 Times in 0 Posts
Thanked 3 Times in 3 Posts
196pat has no particular reputation at present
Re: Double expected termination charge on Mortgage due to negative interest rates

Quote:
View Post
This is what I did when I left CH. One thing worth investigating is how much it will actually cost you to maintain any apartment you purchase while you are no longer in country (costs, taxes (this was high), service charge). I was quite surprised by the overall cost of keeping my place over 10 years, maybe it was the location in Valais but despite the fact I visited regularly, had all my gear there
and after a few years let it out on short term tenancy, once all was said and done the profit in the property after costs was forex due CHF appreciation not property CHF value appreciation.
As far as the bank and mortgage repayments, I am told CS don't care if you are outside of CH, so long as you continue regular payments. I didn't know about the tax side, once you're out of CH. I assumed the ghost rental becomes a profit which you have to declare along with costs etc, as if you were living here? As far as the costs, this will include the mortgage repayments and maintenance, right? And by the service charges you mean the electricity, water and other utilities? My idea would be to also do a short term tenancy to avoid the property being destroyed by the long term tenants (plus may not be able to kick them out when I want).
I didn't quite understand your last sentence re forex vs value appreciation, can you please explain? Many thanks for sharing the info
Reply With Quote
  #18  
Old 26.05.2020, 12:19
Newbie 1st class
 
Join Date: Aug 2009
Location: Basel
Posts: 13
Groaned at 0 Times in 0 Posts
Thanked 3 Times in 3 Posts
196pat has no particular reputation at present
Re: Double expected termination charge on Mortgage due to negative interest rates

Quote:
View Post
Here is what the Bankenombudsman published on the topic:
http://www.bankingombudsman.ch/meldu...schaedigungen/

Swiss courts do indeed use precedents. This is the very reason why the Swiss Federal Supreme Court publishes its "leading cases" (Leitentscheide). https://www.bger.ch/ext/eurospider/l...ex.php?lang=de

There is simply no strict principle of "stare decisis" (i.e. that courts are strictly bound to historic decisions).
WOW, great! Thanks a lot for this reference. So, this means that banks are not allowed to add negative rates to the penalty calculation, unless the contract explicitly allows them to do so? I will send this article to my mortgage manager, may be this will help CS to change their position.

Overall, and in the hindsight, I am appalled how banks are allowed to claim the residual interest value of the mortgage contract without providing would be clients a full disclosure of the WORST CASE scenario (i.e. in my case, 15 year contract would mean a penalty close to 200k CHF in year 1 of the contract). I doubt any person in their right mind, understanding the penalty implication, would enter into an agreement this long. Coming from Australia, where a abnk could license for doing such thing, I never thought of clarifying the termination clause. Also, why does CS specifically link termination with the money markets reinvestment? As if there are no other means to reinvest (excuse my ignorance if I am missing a point here)? This wouldn't be allowed in any other "civilized" country. Unfortunately, in CH this is rampant. So I am sharing this info with all people who are planning to open their mortgage for the first time - ask for a formal document explaining the termination calculation in year 1 of the contract before taking out a mortgage contract.
Reply With Quote
  #19  
Old 26.05.2020, 12:42
twi twi is offline
Newbie
 
Join Date: Jun 2019
Location: Verbier
Posts: 8
Groaned at 0 Times in 0 Posts
Thanked 32 Times in 3 Posts
twi has earned some respecttwi has earned some respect
Re: Double expected termination charge on Mortgage due to negative interest rates

Quote:
View Post
As far as the bank and mortgage repayments, I am told CS don't care if you are outside of CH, so long as you continue regular payments. I didn't know about the tax side, once you're out of CH. I assumed the ghost rental becomes a profit which you have to declare along with costs etc, as if you were living here? As far as the costs, this will include the mortgage repayments and maintenance, right? And by the service charges you mean the electricity, water and other utilities? My idea would be to also do a short term tenancy to avoid the property being destroyed by the long term tenants (plus may not be able to kick them out when I want).
I didn't quite understand your last sentence re forex vs value appreciation, can you please explain? Many thanks for sharing the info
Yeah CS did not care about whether I was in or out of CH until I sold my place and changed my CS address to elsewhere in Europe at which point they started slapping on additional quarterly 150CHF charges labelled as non-swiss resident charge. What they did care about was whether I was living there or not and when I said not, they insisted I put 1/3rd of the value down cash and would only mortgage 2/3rd. The taxes were what one would anyway pay based on rental value and then the local cost for the services such as garbage and tourist tax, in the ski resort they did a lot of maintenance every summer so the charges are probably higher than elsewhere. Then there were the service charges on the property which were quite high and of course the mortgage but that was at a very good rate. To clarify. The chf became about 35% stronger against the Euro from when I bought the property to when I took the cash out and converted it back to Euro. In Euro terms that was a profit and was more than what I made net on the property value over 10 years.
Reply With Quote
  #20  
Old 26.05.2020, 14:50
Newbie 1st class
 
Join Date: Aug 2009
Location: Basel
Posts: 13
Groaned at 0 Times in 0 Posts
Thanked 3 Times in 3 Posts
196pat has no particular reputation at present
Re: Double expected termination charge on Mortgage due to negative interest rates

Quote:
View Post
Yeah CS did not care about whether I was in or out of CH until I sold my place and changed my CS address to elsewhere in Europe at which point they started slapping on additional quarterly 150CHF charges labelled as non-swiss resident charge. What they did care about was whether I was living there or not and when I said not, they insisted I put 1/3rd of the value down cash and would only mortgage 2/3rd. The taxes were what one would anyway pay based on rental value and then the local cost for the services such as garbage and tourist tax, in the ski resort they did a lot of maintenance every summer so the charges are probably higher than elsewhere. Then there were the service charges on the property which were quite high and of course the mortgage but that was at a very good rate. To clarify. The chf became about 35% stronger against the Euro from when I bought the property to when I took the cash out and converted it back to Euro. In Euro terms that was a profit and was more than what I made net on the property value over 10 years.
Did you buy your next object in CH, after you sold the one Valais? I guess, this would be a reason why they'd want 40% downpayment. Otherwise, if I keep the object until it has been sold (and continue my existing payments), then sell it, CS wouldn't care where I live after that. I am just trying to make sure I understood your point re CS demanding a higher deposit - was it while you still had a your Swiss property but told them you are now living elsewhere in EU? I certainly don't want to find myself being pushed to increase the cash deposit after I am no longer in CH. Can create a tricky situation as selling might also take a long time.
Reply With Quote
Reply

Tags
banking fees, mortgage contract, mortgage rates, negative rates, termination tips




Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Mortgage? Which bank offers the best mortgage rates? fashionister Finance/banking/taxation 46 20.01.2020 13:00
Negative interest rates - first retail banking reaction Village Idiot Finance/banking/taxation 39 13.11.2019 11:14
SNB introduces negative interest to weaken the franc MsWorWoo Finance/banking/taxation 91 16.03.2016 20:55
Swiss rates <=5 years go negative Phil_MCR Finance/banking/taxation 0 24.07.2012 15:55
Negative Interest rates on CHF ... markalex Finance/banking/taxation 0 22.07.2010 07:18


All times are GMT +2. The time now is 22:34.


Powered by vBulletin® Version 3.8.4
Copyright ©2000 - 2020, Jelsoft Enterprises Ltd.
LinkBacks Enabled by vBSEO 3.1.0